With Obama planning to meet with bipartisan congressional leaders at the White House tomorrow, three main factions have formed in the Senate, none of which has the 60 votes needed to advance an estate-tax proposal. One includes Republicans such as South Carolina’s Jim DeMint who favor permanent repeal. Another is led by Democrats including Majority Leader Harry Reid who support a top rate of 45 percent that would apply after a $3.5 million tax-free allowance. . . .

A third faction, led by Arizona Republican Jon Kyl and Arkansas Democrat Blanche Lincoln and embraced by Republican leader Mitch McConnell of Kentucky, backs setting the top rate at 35 percent after a $5 million exemption.

Donmoyer also lays out the arguments of proponents and opponents of the estate tax.

Donmoyer’s article has received harsh criticism. In Another Ryan Donmoyer Cheap Shot (The Future of Capitalism, 11/29/2010), Ira Stoll wrote, “[T]he goal of the article doesn't seem to be accuracy; the goal seems to be mocking opponents of the estate tax. It's outrageous. . . . [T]he treatment of Mr. Harbert in the Bloomberg article is a caricature.”

(I found Donmoyer’s article to be timely and informative. You can read the article and its critique it and reach your own conclusion.)

09/14/2010

Lieberman, who is returning to Washington today after the end of the summer recess, said he expects the immediate focus will be on the leader of the Senate Republican minority, Mitch McConnell of Kentucky.

"That's the interesting drama in our story today and tomorrow, which is what will Senator McConnell do on John Boehner's statement yesterday," Lieberman said. "I think if Sen. McConnell agrees, we can extend most of the tax cuts for at least a year, then leave us to argue about higher income tax cuts and the estate tax in the lame-duck session.

With less than fours months before the estate tax returns to levels not seen in nearly a decade, Senate Minority Whip Jon Kyl (R-Ariz.) said little progress has been made on the issue.

"I don't think the Democratic leadership has figured out how to approach the whole tax issue, and that [the estate tax] is a big part of it," he told reporters Monday. "Nobody has talked to me about it, and they know that [Sen. Blanche Lincoln (D-Ark.)] and I are the two that have been pushing reform."

07/15/2010

Notes on the proposal by Sens. Blanche Lincoln [D-AR] and Jon Kyl [R-AZ]:

Stated purposes? To help “hardworking farmers and small businesses” and to take Congressional action to bring certainty to the federal estate tax. (See press release.)

Method? The proposal is not a new bill. Instead, the proposal would require the Senate Finance Committee to amend H.R. 5297, the Small Business Lending bill. Senator Kyl explains why the proposal would be added as an amendment: “If the Small Business Lending bill is intended to help small business create jobs, wouldn’t it make sense to provide small business owners with the certainty that their tax rates aren’t going to skyrocket at the beginning of next year?” (From press release.)

Estate tax rate? 35% (permanent). Note, however, that the Motion to Commit states that the rate will be “a 35 percent estate tax rate phased in over 10 years.”

Retroactivity? Yes, but optional: “The Lincoln-Kyl proposal provides an election for deceased taxpayers to either retain this year’s estate tax rate, which is zero percent with ‘carry over basis,’ or file under the provisions of the new bill.” (From press release.)

Offset? Yes. The “proposal also instructs the Senate Finance Committee to offset the difference in revenue loss between the Obama administration’s proposed 45 percent estate tax rate with a $3.5 million exemption amount and their proposed reform.” (From press release.)

History:

The press release states, “Senators Lincoln and Kyl introduced a similar measure in April 2009 that received broad bipartisan support and was successfully added to the non-binding congressional budget resolution.” But the April 2009 measure was criticized by the Center on Budget and Policy Priorities. Chuck Marr and Jason Levitis, Lincoln-Kyl Estate Tax Amendment is Both Unnecessary and Unaffordable, CBPP, Apr. 10, 2009.

Sam Goldfarb, Lincoln, Kyl to Offer Estate Tax Motion on Small-Business Bill, Tax Notes Today, Doc 2010-15662, 2010 TNT 135-1, July 15, 2010 (“The Senate is not expected to begin floor action on H.R. 5297 until the week of July 19 at the earliest. Senate Majority Leader Harry Reid, D-Nev., has yet to determine which amendments will get floor votes, and he has accused Republicans of making his job difficult by offering amendments unrelated to small businesses. However, on July 14 Reid didn't rule out the possibility that senators could vote on the Lincoln-Kyl amendment, telling reporters, ‘We'll see.’”).

Jay Heflin, Kyl seeks to add an estate tax fix to small-business bill, On the Money: The Hill’s Finance & Economy Blog, July 13, 2010 (“Senate Majority Leader Harry Reid (D-Nev.) has engaged a procedural maneuver called “filling the tree” that limits the number of amendments that can be offered on a particular bill.”).

Martin Vaughan, US Sens Kyl, Lincoln Seek Vote On Limiting Estate Tax, NASDAQ, July 14, 2010 (“The phase-in is a change from legislation Kyl and Lincoln have introduced in the past and is meant to make the short-term cost of the bill appear smaller. . . . In contrast to the Lincoln-Kyl proposal, U.S. President Barack Obama has proposed setting a 45% rate and a $3.5 million estate tax exemption amount.”).

Senate Minority Whip Jon Kyl (R-Ariz.) will once again team up with Sen. Blanche Lincoln (D-Ark.) on an estate tax fix they hope will be voted on during debate on small-business legislation that creates a $30 billion lending pool and provides approximately $12 billion in tax relief.

“We would like to bring it forward as an amendment to the small-business bill, but it’s up the leader,” Kyl said.

Senate Majority Leader Harry Reid (D-Nev.) has engaged a procedural maneuver called “filling the tree” that limits the number of amendments that can be offered on a particular bill.

The Senate returned to the small-business bill earlier on Tuesday. . . .

Under the Kyl-Lincoln proposal, estates worth [less] than $3.5 million would initially be exempt from the tax. That exemption level would rise to $5 million over a 10-year period. The tax rate would also be phased-in, ending at 35 percent after 10 years. Estates would have the option to prepay the tax at a lower rate.

(Special thanks to Rania Combs (estate planning attorney, Texas) for bringing Heflin's post to my attention. You can follow Rania Combs on Twitter and learn more about her practice on Texas Wills & Trusts Online.)

[3] Heflin writes, “Sens. Jon Kyl (R-Ariz.) and Blanche Lincoln (D-Ark.) are expected to offer an amendment in the upcoming debate on small business legislation that would tax estates worth more than $5 million at a 35 percent rate.” Sen. Kyl has been working hard to gather support for lower estate tax, but has had limited success. I have categories set up for Sen. Kyl and for Sen. Lincoln. These categories aggregated my posts that mention these senators: Sen. Jon Kyl [R-AZ], Sen. Blanche Lincoln [D-AR].

Currently, individuals who pay state-level estate and inheritance taxes can deduct them from their federal taxes. The proposal the senators were negotiating, however, reportedly included a provision that — to reduce its overall costs — would end the federal deduction that taxpayers can take for state-level estate and inheritance tax payments. . . .

But if this provision is enacted, then once state budgets begin to recover from the recent recession, states may face the choice of restoring the deep cuts they were forced to make in K-12, higher education, public safety, and other key services — or eliminating or reducing their estate or inheritance taxes.

The exact details of the proposal were not released to the public, so it is not clear whether the now-stalled proposal contemplated eliminating the deduction or the credit for state death taxes. In US Senate Effort to Reduce Estate Tax Hits Turbulence (Dow Jones Newswires, 5/18/10), Martin Vaughan writes, “The federal credit for state estate taxes would be repealed under the Lincoln- Kyl plan.” McNichol examines the challenges that states could face if both the credit and the deduction were eliminated.

The higher exemption level and lower tax rate would be phased in over the coming decade rather than provided up front, thereby lowering the bill’s cost in the first ten years without reducing its cost after that. In that way, the legislation resembles a bill that Rep. Shelly Berkley introduced in the House last year.

A wealthy individual would be enticed to “prepay” his or her estate taxes now at a discounted rate, rather than have his or her estate pay the taxes upon the individual’s death. That would generate revenue for the federal government in the short run but cost the government even more revenue in the long run, because it would push into the next ten years taxes that would have been paid in subsequent decades at a higher rate.

Although this report leans to the political left, it is informative. The report shows that planning just to meet the pay-as-you-go provisions can be short-sighted:

The proposal’s true cost impact would be felt only in future decades, which conveniently lie outside the ten-year budget window for which the Joint Committee on Taxation provides cost estimates.

Yet it is precisely in those future decades that the nation’s fiscal situation will become grave. Virtually every fiscal analyst across the political spectrum regards the nation’s long-term fiscal path as unsustainable, with our fiscal problems growing significantly worse over time and with an increasing risk to the economy with each passing decade.

It is interesting to note that the report has “gimmicks” of its own. It does not criticize just the recent proposal. It also criticizes:

Rep. Shelley Berkley’s similar proposal in H.R. 3905, which has been popular among those who would like to see the estate tax eliminated but know it is not possible with the current composition of the House and Senate,

proposals to extend the 2009 rates -– one section in the report is titled, “Even Extending 2009 Estate Tax Rules Would be Costly” -- and

arguments made by vocal opponents of the estate tax: small businesses and farmers.

So, despite its title, the scope of the report is vaster than just the stalled proposal. This is a classic technique, or “gimmick,” used in media activism: re-frame the conversation to make sure your cause’s points are discussed.

[I]n a closed-door meeting of Senate Democrats Tuesday, several senators denounced the plan in strong terms, according to those present. They argued that with problem budget deficits and with many Americans still out of work, it is the wrong time to cut taxes on the richest Americans.

“We no longer have an agreement because the Democratic side has decided that unless a matter has a guaranteed majority of Democratic votes going in, they’re not going to allow it on the floor, at least not voluntarily. . . . So we have to find a way to get a reasonable permanent estate tax reform to the floor where members can vote on it.” (Source: Vicki Needham, Kyl: Senate deal off on estate tax.) (You can hear Sen. Kyle speak the first sentence at Republican Kyl Says Democrats Are Blocking His Estate Tax Amendment, Talk Radio News Service, May 18, 2010.)

Senator Robert P. Casey, Jr. [D-PA]: “The idea that we’re going to give an incredible economic advantage to less than 1 percent of our taxpaying population is really offensive to me. . . . Most of our caucus is very concerned with what would happen on the estate tax.” (Source: Sam Goldfarb, No Deal Yet on Estate Tax, Baucus Says, Tax Notes Today, May 18, 2010, 2010 TNT 96-5.)

Senator Bernard Sanders [D-VT]: “The idea that we would make significant exemptions within the estate tax to give more tax breaks to the top three-tenths of 1% is nauseating. I will do everything I can to stop that.” (Source: Martin Vaughan, US Senate Effort to Reduce Estate Tax Hits Turbulence.)

Notes on the proposed deal.

Although the details of the proposed deal have not been disclosed, here are some notes, which are compiled from various news articles:

No credit for state estate taxes. The federal tax credit for state estate taxes would continue to be repealed.

Limits on GRATs. Limits on the use of GRATs were being considered.

Pay-as-you-go. The proposal could comply with pay-as-you-go rules. “Budgeting rules dictate that the 2009 estate tax levels can be extended for two years without revenue offsets, but additional revenue loss must be offset. Senators can waive the offset rule, however, with a 60-vote supermajority.” (Eric Kroh, Kyl Says Agreement Reached on Some Estate Tax Details, Tax Notes Today, May 18, 2010, 2010 TNT 95-2.)

A number of issues were not clarified in the articles that I read:

the gift tax rate and exemption

whether any changes would be retroactive

Also, there is no indication that portability of the exemption amount between spouses was discussed.

Status of the reform.

Estate tax uncertainty continues. Reform is hampered by a deep divide between democrats and republicans:

House. As indicated in the voting for H.R. 4154, most Democrats in the House supported a permanent estate tax with an exemption of $3.5 million and a tax rate of 45%. Republicans in the House did not.

Senate. As the current talks indicate, some Republicans (and some Democrats) would support a lower estate tax rate (down to 35%) and a higher exemption (up to $5 million). Yet some Democrats vehemently oppose such a tax reduction. At least one Democrat in the Senate finds the idea “nauseating.”

The plan by Sens. Jon Kyl (R-Ariz.) and Blanche Lincoln (D-Ark.) to create a 35 percent tax on estates worth more than $5 million is gaining traction in the House.

One advocate is Rep. Shelley Berkley (D-Nev.). . . .

Still, paygo rules prevent the proposal from sailing through both chambers.

Lawmakers need to offset any cost beyond 2009 estate tax law, which is a 45 percent tax on estates worth more than $3.5 million.

Lee Farris posted an interesting observation as a comment to Heflin’s post. In part, Farris wrote,

In 2009, Rep. Berkley introduced legislation calling for a $5 million individual/$10 million married couple estate tax exemption with a 35% rate. The legislation did not come up for a House vote. Instead, the House voted 225-200 to extend the 2009 estate tax law permanently, ($3.5 million exemption per spouse and 45% rate). Rep. Berkley voted for that piece of legislation, see http://clerk.house.gov/evs/2009/roll929.xmlSo I don't see how Rep. Berkley still supporting something similar to her own legislation shows that the Senate proposal is "gaining steam" in the House.

Farris is the Estate Tax Policy Coordinator at United for a Fair Economy, an organization that supports a stronger estate tax. In his comment to Heflin’s post, Farris stated that he supports Rep. McDermott’s H.R. 2032:

I'm hoping that Rep. Levin and the Ways and Means Committee will seriously consider HR 2032, sponsored by Rep. McDermott, D-Wash. It would make permanent the exemption level at $2 million/spouse, and establish progressive tax rates of 45% for estates between $2-5 million; 50% for estates between $5-10 million; and the pre-2001 rate of 55% for estates above $10 million — all indexed for inflation. The bill also includes reunification, portability, and the state estate tax credit. This bill will do the most to prevent growing economic inequality, which is now at an all time high.

03/01/2010

Today, we begin a new month, but Congress’s failure to fix the federal estate tax continues. The efforts of some members of Congress to help the wealthy by reducing (or eliminating) the federal estate tax might be a key reason why unemployment benefits start expiring today.

Starting Monday, the jobless will no longer be able to apply for federal unemployment benefits or the COBRA health insurance subsidy.

Federal unemployment benefits kick in after the basic state-funded 26 weeks of coverage expire. During the downturn, Congress has approved up to an additional 73 weeks, which it funds.

These federal benefit weeks are divided into tiers, and the jobless must apply each time they move into a new tier.

Because the Senate did not act, the jobless will now stop getting checks once they run out of their state benefits or current tier of federal benefits.

That could be devastating to the unemployed who were counting on that income. In total, more than one million people could stop getting checks next month, with nearly 5 million running out of benefits by June, according to the National Unemployment Law Project.

Lawmakers repeatedly tried to approve a 30-day extension this week, but each time, Sen. Jim Bunning, R-Ky., prevented the $10 billion measure from passing, saying it needs to be paid for first.

Notably, the CNN Money article does not explicitly mention the federal estate tax as a reason for the gridlock in the Senate. But an op-ed column in the Washington Post -- Living with partisanship, by E.J. Dionne Jr. -- explains that the federal estate tax is a key reason why Congress did not extend unemployment benefits:

Sen. Jim Bunning (R-Ky.) has put a hold on the extension bill, but one of the key reasons the measure is blocked is the effort of Sen. Jon Kyl (R-Ariz.) to use it as a way of forcing a cut in the estate tax. Kyl is essentially leveraging the unemployed to get a deal on estate tax relief that would cost $138 billion over the next decade, according to estimates by the Center on Budget and Policy Priorities. The estate tax has already been cut sharply, so the reduction Kyl is pushing along with Sen. Blanche Lincoln (D-Ark.) would affect the estates of fewer than three out of every 1,000 deceased, according to the Tax Policy Center.

The proposal helps estates worth more than $7 million in the case of couples. I guess struggling millionaires deserve the same empathy we feel for those without a job.

And notice this: Especially in the Senate, what passes for "bipartisanship" too often involves a Democrat such as Lincoln allying with a Republican on behalf of the wealthiest interests in the country. And we're supposed to cheer this?

See also Isaiah J. Poole, Kyl Does The Despicable: Holds Unemployment Benefits Hostage For Estate Tax Cut, Campaign for America’s Future: Blog for Our Future, Feb. 25, 2010 (“Starting Monday, 1.1 million people will lose their unemployment benefits because right-wing Sen. Jon Kyl, R-Ariz., thinks its more important to give tax breaks to millionaires than to ensure that nearly broke people won't get thrown out of their homes or go hungry.”).

* * *

On a subject related to unemployment, I found this CNN Money video regarding the status of economy to be very informative:

The Gates Family Foundation – arguably the biggest charity in the world with assets over $35 billion according to 2008 records – is in the crosshairs of Sens. Jon Kyl (R-Ariz.) and Blanche Lincoln (D-Ark.), who see it as a money pot to help pay for a legislative fix for the estate tax.

Neither of the senators’ offices would confirm that they are considering a change to family foundations’ tax status, but sources said such a charge could raise enough revenue to reinstate the estate tax to a rate lower than 2009 levels, when estates worth more than $3.5 million were taxed at a top rate of 45 percent. . . .

Sources say the Joint Committee on Taxation has been asked to score the toll charge. The committee would not confirm this.

* * *

In another entry on The Hill's Blog Briefing Room -- Kyl: Time to act on estate tax (2/23/2010) -- Heflin reports that Senate Minority Whip Jon Kyl [R-AZ] "discounted the idea" of a "toll charge":

Well-placed sources say the senators might create a “toll charge” on charitable foundations that would sock Democratic heavyweights like Bill Gates and Warren Buffet. Kyl discounted the idea, but said nothing had been agreed to.